Grain and Cotton Economics. Mark Welch Extension Economist Grain Marketing (979)

Transcription

1 Grain and Cotton Economics Mark Welch Extension Economist Grain Marketing (979)

2 Marketing

3 2012, here we come! Tight supplies Grain Strong demand Yoked to outside markets

4 2012, here we come! Large supplies Cotton Weak demand Yoked to outside markets

5 Top 5 US Trading Partners, $ billions

6 World Per Capita Grain Use kg / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /2013 barley, corn, millet, mixed grains, oats, rice, rye, sorghum, soybeans, and wheat PSD, 6/12/2012

7 World Per Capita Cotton Use Shaded bars represent periods of economic recession. Cotton consumption tends to drop during those periods due to fewer purchases of clothes, home furnishings, etc. Lbs./Population / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /2012 Source: USDA/ERS/WASDE

8 Cotton Market Outlook John Robinson Professor and Extension Economist-Cotton Marketing Department of Agricultural Economics Texas AgriLife Extension Service Texas A&M University College Station, Texas Cotton futures price forecast: Dec 12 between $0.65 to $0.85

9 Cotton Ending Stocks Increasing U.S. new crop cotton ending stocks are forecasted higher than previous year. World old crop cotton ending stocks are already at record high levels. USDA also sees a year-on-year increase for 2012/13 -- BEARISH!!

10 New York Cotton Futures High, Low, and Close Settlement Prices, December Contracts, Cents/Lb S:U 63% 58% 63% 68% High Low Close

11 And Lower Prices as a Result Bearish May WASDE Numbers European Contagion

12 World Days of Use on Hand, 6/12/ Corn Soybeans Days of Use Average Days of Use Average Wheat Sorghum Days of Use Average Days of Use Average

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14 2012 U.S. Corn Crop Condition Ratings 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% t +7.1% bu/ac t +1.4% bu/ac t +1.5% bu/ac Very Poor Poor Fair Good Excellent Source: Crop Progress, USDA

15 Oceanic Nino Index (ONI) ENSO-neutral conditions continue. Sea surface temperatures are near average across much of the equatorial Pacific Ocean and are above average in the eastern Pacific. There is a 50% chance that El Nino conditions will develop in the second half of C Actual Measurements Latest Weekly SST Departure Predicted El Nino 0.5 Neutral 0.0 La Nina El Niño/Southern Oscillation (ENSO) Diagnostic Discussion, June 18,

16 U.S. Corn: Disappearance, 6/12/2012 Million Bushels 7,000 6,000 5,000 4,000 3,000 2,000 Ending Stocks Feed & Residual Food Seed Industrial Exports Fuel 1, /81 81/82 82/83 83/84 84/85 85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 Source: Feed Yearbook, USDA/ERS, December WASDE, USDA 2010/11 preliminary; 2011/12 projected

17 Area and Yield Needed to Produce billion bushel crop (use estimate from June 2012 WASDE) Bushels per acre Add to Ending Stocks Reduce Ending Stocks +5% of trend 851-5% of trend Percent planted harvested for grain: 92.9 Planted acres, millions

18 Area and Yield Needed to Produce billion bushel crop (use estimate from June 2012 WASDE) Bushels per acre Add to Ending Stocks Reduce Ending Stocks $ % of trend 1,881 (95.9, 166) 851-5% of trend Percent planted harvested for grain: 92.9 Planted acres, millions

19 Area and Yield Needed to Produce billion bushel crop (use estimate from June 2012 WASDE) Bushels per acre Add to Ending Stocks Reduce Ending Stocks +5% of trend $4.60 1,881 (95.9, 166) $4.81 1,203 (94.9, 160) 851-5% of trend Percent planted harvested for grain: 92.9 Planted acres, millions

20 Area and Yield Needed to Produce billion bushel crop (use estimate based on lower feed numbers) Bushels per acre Add to Ending Stocks +5% of trend $4.12 2,203 (94.9, 160) % of trend Reduce Ending Stocks Percent planted harvested for grain: 92.9 Planted acres, millions

21 December Corn Futures and 2012 Marketing Plan /bu % 20% 20% 20% 20% South American crop conditions Battle for Acres Planting Intentions Early season crop condition and weather outlook Acreage Report/ Grain Stocks Tassel and August Crop Report Cash sales at harvest Sold 20% at $5.63¾ Sold 20% at $5.00 floor, $5.70 ceiling 11/1/ /10/ /21/ /1/ /12/ /21/2011 1/3/2012 1/12/2012 1/24/2012 2/2/2012 2/13/2012 2/23/2012 3/5/2012 3/14/2012 3/23/2012 4/3/2012 4/13/2012 4/24/2012 5/3/2012 5/14/2012 5/23/2012 6/4/2012 6/13/2012 6/22/2012 7/3/2012 7/10/2012 7/17/2012 7/24/2012 7/31/2012 8/7/2012 8/14/2012 8/21/2012 8/28/2012 9/4/2012 9/11/2012 9/18/2012 9/25/ /2/ /9/ /16/ /23/ /30/ /6/ /13/ /20/ /27/ /4/ /11/ /18/2012

22 Crop Insurance Price Floor with 65% Revenue Protection, 70 bu APH $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $ (80%) (120%) Yield Crop Insurance Calculator February Sales Closing Date Price: December Corn Futures Discovery Periods: Projected Price 1/1-1/31 $5.69 Harvest Price 9/1-9/30 Price floor Current Futures Price

23 Hedging Example: what if you re right? Corn Do Nothing Hedge Acres 500 Spring Futures Price $5.84 $4.80 $5.27 Yield, bu 70 Harvest Futures Price $5.00 $168,000 $184,600 est. production, bu 35,000 Basis at harvest ($0.20) pre-harvest mkt 0.5 pre harvest, bushels 17,500 contract spec, bu 5,000 contracts to hedge 4 Hedging with Futures Contracts Spring Sell 4 Dec C $5.84 Harvest Buy 4 Dec C $5.00 Profit(loss) $0.84 $16, Commission ($50/contract) ($200.00) Net profit (loss) from hedge $16, Basis at harvest ($0.20) Sell 35,000 bushels $4.80 $168, Net sales $184, Average price per bushel $5.27

24 Hedging Example: what if you re wrong? Corn Do Nothing Hedge Acres 500 Spring Futures Price $5.84 $6.80 $6.13 Yield, bu 70 Harvest Futures Price $7.00 $238,000 $214,600 est. production, bu 35,000 Basis at harvest ($0.20) pre-harvest mkt 0.5 pre harvest, bushels 17,500 contract spec, bu 5,000 contracts to hedge 4 Hedging with Futures Contracts Spring Sell 4 Dec C $5.84 Harvest Buy 4 Dec C $7.00 Profit(loss) ($1.16) ($23,200.00) Commission ($50/contract) ($200.00) Net profit (loss) from hedge ($23,400.00) Basis at harvest ($0.20) Sell 35,000 bushels $6.80 $238, Net sales $214, Average price per bushel $6.13

25 John R.C. Robinson Extension Economist-Cotton Marketing (979) Mark Welch Extension Economist Grain Marketing (979) Facebook, search Master Marketer

26 U.S. Export Share 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Corn Wheat Soybeans Sorghum PSD, 5/13/2012

27 Domestic Ethanol Consumption Million gallons 1,400 1,200 1, Source: Renewable Fuels Association

28 Total Ethanol Consumption Million gallons 1,400 1,200 1, Source: Renewable Fuels Association

29 Feed Use GCAU mil mt/gcau Dairy Cattle on Feed Other Cattle Hogs Poultry Other Livestock Feed per GCAU Plus DDGs USDA Feed Grain Database and Agricultural Marketing Resource Center, June 12, 2012

30 5 Simple Rules 1. Change is always good. 2. The day you say you have to do something, you re in trouble. 3. Know your breakeven price. 4. Know what you want and go after it. 5. Ignore coffee shop talk.

31 Spec Influence Millions Average Nearby Futures Price, January 6, 2006 June 8, Spec role in 2010/11 was that of an early catalyst before backing down 2/10/06 3/24/06 5/5/06 6/16/06 7/28/06 9/8/06 10/20/06 12/1/06 1/12/07 2/23/07 4/6/07 5/18/07 6/29/07 8/10/07 9/21/07 11/2/07 12/14/07 2/1/08 3/14/08 4/25/08 6/6/08 7/18/08 8/29/08 10/10/08 11/21/08 1/2/09 2/13/09 3/27/09 5/8/09 6/19/09 7/31/09 9/11/09 10/23/09 12/4/09 1/15/10 2/26/10 4/9/10 5/21/10 7/2/10 8/13/10 9/24/10 11/5/10 12/17/10 1/28/11 3/11/11 4/22/11 6/3/11 7/15/11 8/26/11 10/7/11 11/18/11 12/30/11 2/10/12 3/23/12 5/4/ Cents/Lb. Long Less Short Nearby Futures Price

32 Wheat, Corn, and Soybeans Speculative Investment Net long contracts 1,000,000 /bu , , , , , , , , , , Index Funds Hedge Funds Price Source: CFTC, positions as of June 5, 2012 reported June 8, 2012

33 Bushels per acre U.S. Corn Yields p 2013 Yield Trend WASDE, 5/10/2012

34 Corn Yield, % Deviation From Trend 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% p 2013

35 2012 U.S. Corn Crop Condition Ratings 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% t +7.1% bu/ac t +1.4% bu/ac Very Poor Poor Fair Good Excellent Source: Crop Progress, USDA

36 June Corn Acreage Report versus March Planting Intentions Deviation from normal corn planted mid-may: even -15% -23% +9% -12% +21% April average soybean:corn price ratio: % 2% 1% 0% -1% -2%

37 Hedging Example: what if you re right? Corn Do Nothing Hedge Acres 500 Spring Futures Price $5.16 $4.55 $4.84 Yield, bu 70 Harvest Futures Price $4.75 $159,250 $169,250 est. production, bu 35,000 Basis at harvest ($0.20) pre-harvest mkt 0.5 pre harvest, bushels 17,500 contract spec, bu 5,000 contracts to hedge 4 Hedging with Futures Contracts Spring Sell 5 Dec C $5.16 Harvest Buy 5 Dec C $4.75 Profit(loss) $0.41 $10, Commission ($50/contract) ($250.00) Net profit (loss) from hedge $10, Basis at harvest ($0.20) Sell 35,000 bushels $4.55 $159, Net sales $169, Average price per bushel $4.84

38 Hedging Example: what if you re wrong? Corn Do Nothing Hedge Acres 500 Spring Futures Price $5.16 $5.55 $5.12 Yield, bu 70 Harvest Futures Price $5.75 $194,250 $179,250 est. production, bu 35,000 Basis at harvest ($0.20) pre-harvest mkt 0.5 pre harvest, bushels 17,500 contract spec, bu 5,000 contracts to hedge 4 Hedging with Futures Contracts Spring Sell 5 Dec C $5.16 Harvest Buy 5 Dec C $5.75 Profit(loss) ($0.59) ($14,750.00) Commission ($50/contract) ($250.00) Net profit (loss) from hedge ($15,000.00) Basis at harvest ($0.20) Sell 35,000 bushels $5.55 $194, Net sales $179, Average price per bushel $5.12

39 Collar or 3-way Window Strategy Current Price Dec 12: , (assume basis = $0.00) Sell 460 put (+18), Buy 500 put (-35), Sell 570 call (+18), net premium rec d = 1 cents Cash price, cents per bu 700 Do Nothing Collar Hedge /11/2011 December futures at option expiration, cents per bu

40 CATTLE ON FEED US Total, Monthly Mil. Head Avg. 2006/ JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Livestock Marketing Information Center Data Source: USDA-NASS C-N-10 05/18/12

41 U.S. All Hogs and Pigs Inventory 000 head 68,000 67,000 66,000 65,000 64,000 63,000 62,000 61,000 March June September December 5-year Average

42 MARCH 1 ALL HOGS AND PIGS U.S. Inventory (Prior to 1988 Estimated) Mil. Head Livestock Marketing Information Center Data Source: USDA-NASS H-N-01 03/30/12

43 MARCH 1 MARKET HOGS U.S. Inventory (Prior to 1988 Estimated) Mil. Head Livestock Marketing Information Center Data Source: USDA-NASS H-N-03 03/30/12

44 BROILER CHICKS PLACED Weekly Mil. Birds Avg JAN APR JUL OCT 2012 Livestock Marketing Information Center Data Source: USDA-NASS P-S-11 05/24/12

45 Major Corn Importers, 2012/ % 45% 7% 9% 8% Japan Mexico South Korea China EU-27 Egypt Taiwan ROW 4% 5% 6% World Total = billion bushels

46 Where Do Prices Go From Here? 1. Be the low cost producer 2. Lock in profitable prices Prices will fall back to the cost of production --Principles of Economics, Sir Alfred Marshall (1890)